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NL Industries, Inc. (NYSE:NL) shareholders should be happy to see the share price up 12% in the last month. But that's small comfort given the dismal price performance over the last year. Like a receding glacier in a warming world, the share price has melted 60% in that period. So the bounce should be viewed in that context. You could argue that the sell-off was too severe.
NL Industries isn't currently profitable, so most analysts would look to revenue growth to get an idea of how fast the underlying business is growing. Shareholders of unprofitable companies usually expect strong revenue growth. That's because it's hard to be confident a company will be sustainable if revenue growth is negligible, and it never makes a profit.
In the last year NL Industries saw its revenue grow by 9.5%. While that may seem decent it isn't great considering the company is still making a loss. It's likely this muted growth has contributed to the share price decline of 60% in the last year. Like many holders, we really want to see better revenue growth in companies that lose money. When a stock falls hard like this, it can signal an over-reaction. Our preference is to wait for a fundamental improvements before buying, but now could be a good time for some research.
You can see how revenue and earnings have changed over time in the image below, (click on the chart to see cashflow).
This free interactive report on NL Industries's balance sheet strength is a great place to start, if you want to investigate the stock further.
A Different Perspective
While the broader market gained around 6.1% in the last year, NL Industries shareholders lost 60%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 17% over the last half decade. We realise that Buffett has said investors should 'buy when there is blood on the streets', but we caution that investors should first be sure they are buying a high quality businesses. Most investors take the time to check the data on insider transactions. You can click here to see if insiders have been buying or selling.
Of course NL Industries may not be the best stock to buy. So you may wish to see this free collection of growth stocks.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.